Final Rule on Health Insurance Reforms and Rate Review

The Affordable Care Act (ACA) includes provisions that prohibit discrimination by health plans against people with pre-existing conditions and provide certain protections for consumers. Effective for plan years beginning on or after Jan. 1, 2014, ACA extends guaranteed issue protections for individuals and employers, prohibits the use of health and other factors to set premium rates, limits age rating and prohibits insurers from dividing up insurance pools.

On Feb. 22, 2013, the Department of Health and Human Services (HHS) released an advance copy of a final ruleregarding ACA’s health insurance market reforms and existing rate review program. These reforms apply to health insurance issuers offering non-grandfathered coverage both inside and outside of ACA’s health insurance exchanges (Exchanges). Key topics in the final rule include:

  • Guaranteed availability and renewability of coverage;
  • Fair health insurance premiums;
  • Single statewide risk pools;
  • Catastrophic plans; and
  • The existing rate review program.

Guaranteed AVAILABILITY of Coverage

ACA requires health insurance issuers that offer coverage in a state’s individual or group market to accept every individual and employer in the state that applies for coverage, subject to certain exceptions. These exceptions allow issuers to limit enrollment:

  • To certain open and special enrollment periods;
  • To employers with eligible individuals who live, work or reside in the service area of a network plan; and
  • In certain situations involving network capacity and financial capacity.

This rule, which does not apply to grandfathered health insurance coverage, is intended to prohibit health insurance issuers from denying coverage to people because of a pre-existing condition or any other health factor.

The final rule requires issuers offering coverage in the group market to maintain a year-round open enrollment period for employers to purchase coverage. Issuers offering individual coverage will be required to offer plans during open enrollment periods consistent with those required by the Exchanges.


The final rule reaffirms existing protections that individuals and employers have with respect to coverage renewal. For example, these protections will prohibit issuers from refusing to renew coverage because an individual or employee becomes sick or has a pre-existing condition.

Specifically, the final rule will require health insurance issuers offering coverage in the individual or group market for non-grandfathered plans to renew or continue in force coverage at the option of the plan sponsor or individual, with certain exceptions. These exceptions are:

  • Nonpayment of premiums;
  • Fraud or intentional misrepresentation of material fact under the terms of coverage;
  • For group coverage, the plan sponsor’s failure to comply with employer contribution or group participation rules under state law;
  • The issuer ceasing to offer coverage of this type (without regard to claims experience or health status-related factor);
  • For network plans, there no longer being any enrollee who lives, resides or works in the service area of the issuer or where the issuer is authorized to do business (in the case of the small group market, the employer no longer having eligible individuals who live, work or reside in the service area for the network plan); and
  • For coverage provided through a bona fide association, the employer’s membership in the association ceases, but only if the coverage terminated uniformly without regard to any health status-related factor relating to any covered individual.

In addition, the final rule imposes a waiting period on issuers who wish to re-enter a market after discontinuing all coverage in that market. An issuer that elects to discontinue offering all health insurance coverage in a market (or markets) in a state may not issue coverage in the state’s market (or markets) involved for a period of five years.

Fair Health Insurance Premiums

ACA and the final rule limit the factors that can vary premium rates in small group and individual markets for non-grandfathered plans. Specifically, health insurance issuers will only be allowed to vary premiums based on:

  • Age (within a 3:1 ratio for adults);
  • Tobacco use (within a 1.5:1 ratio, subject to wellness program requirements in the small group market);
  • Family size; and
  • Geography.

All other rating factors are prohibited. This means that several factors frequently used to set premiums, such as health status, claims history, duration of coverage, gender, occupation, small employer size and industry, can no longer be used.

These limitations represent minimum federal standards for fair health insurance premiums. States can choose to enact stronger consumer restrictions. In addition, starting in 2017, states have the option of allowing large employers to purchase coverage through the Exchanges. For states that choose this option, these rating rules would also apply to all large group health insurance coverage.

Single Risk Pool

ACA and the final rule require health insurance issuers to maintain a single statewide risk pool for non-grandfathered plans for each of their individual and small employer markets, unless a state chooses to merge the individual and small group pools into one pool. Premiums and annual rate changes will be based on the health risk of the entire pool. This requirement applies to health plans both inside and outside of an Exchange for both markets.